Why 2U spent R1.38 billion to acquire GetSmarter

By Anne Gonschorek

Nasdaq-listed digital education platform 2U recently acquired Cape Town based GetSmarter for R1,38 billion. OfferZen met with 2U’s COO Susan Cates to chat about why she thinks the South African company is a good fit.

First things first. Can you tell us about yourself?

I’m Susan Cates, I’m the Chief Operating Officer. I’ve been with 2U for just over a year, but it feels like I’ve been with the company for a lot longer than that. The first time I touched base with 2U was seven years go when I was at the University of North Carolina (UNC). I led the negotiations of UNC’s partnership with 2U to launch an online MBA programme and afterwards also led the programme. So practically, I have been working very closely with 2U from the very early stages of the company.

What finally enticed you to join them?

I really loved being at UNC, loved my interaction with the students and the faculty. But the opportunity to work with a team whose mission seemed so aligned with what I had been doing and what I believed in, was really too good to pass up. On the personal side, too, a lot of these things are driven by where you are in your personal life, too, right?

I had been doing private equity and spending a lot of my time doing international acquisitions. When I chose to leave that and go to work for UNC, it was in part to have a little more work-life balance and be able to start a family.

Can you tell us about 2U’s mission and culture?

We believe that education is and will continue to be the single most important catalyst for societal change and upward mobility. One idea that guides everything we do at 2U is the idea that every person counts. There’s no reason for students to have to quit their jobs, uproot their lives and move across the country or around the world to have access to great higher education.

With what we’re doing together with our university partners, they don’t need to. Together with our top-tier partners, we are creating online degree programs that are equal to or even better than traditional on-campus programs.

Whilst we have been very focused on the US graduate degree market, we believe that access to high-quality education is a global issue. For us, that means there’s also a global opportunity to reach the right student with the right programme at the right time in their life.

Our CEO is one of the founders of our business, Chip Paucek. I’ve known Chip for probably 16, 17 years now. Chip has an extraordinarily high energy. He is very focused on our mission and very focused on creating a culture that is really dedicated to high-quality experiences, both for our partner institutions and for their students and faculty, and having fun while we do it.

It’s actually pretty interesting because that’s one of the things that’s really exciting to all of us about our partnership with GetSmarter: There is just so much similarity between our cultures. Because you have the GetSmarter founders Sam and Rob Paddock with very similar missions, very similar high energy levels, very similar focus on the product quality, and on creating a team and a culture that really supports everything they’re doing.

Speaking of which, how did the initial conversations between 2U and GetSmarter start?

It’s actually quite funny because it all started because Chip saw an ad that popped up on his computer screen. GetSmarter was running an online course for MIT, and MIT is pretty famous in the US for investing in their own resources to deliver online education. That’s why this really caught Chip’s attention. He was surprised and impressed, and said: ‘Who’s this company that is partnering with MIT? I should find out.’ - And that started the conversation.

Were you already looking to expand at that point?

We weren’t specifically looking to make an acquisition and GetSmarter was not looking to be sold when we began our conversations. It was really driven by how powerful we felt that this fit was, as opposed to looking more generically at acquisitions. We don’t expect to be making acquisitions a significant part of our strategy going forward either.

But as we do think about the global scale I mentioned earlier, short courses play an important role. The different ways of broadening people’s skill sets at different points in their careers require a certain accessibility and for that, short courses play a significant part. We saw the value of the short courses in the broader international market as very attractive, and it’s been an expansion area that’s been on our radar screen for some time. But given the growth in our core business, it’s not something that we had the ability to focus attention on.

We had a pretty good view of the landscape of companies that were providing this type of short courses and we really didn’t believe that there was anyone as powerful an asset for us as GetSmarter.

When we met their team, we were so impressed with their approach to their partners and the quality they deliver - the same things that we care about. As we think about our global strategy, the acquisition of GetSmarter really is our global strategy over the longer term. They have been designing courses in partnership with universities in Africa, the UK, and the US - all of which have global appeal. They’ve served, at this point, about 57 000 students in 150 countries.

Apart from those impressive numbers, what convinced you that GetSmarter was such a good fit for 2U?

After Chip’s initial conversations, our CFO, Cathy Graham, and I led a team of our executives down to visit GetSmarter earlier this year as part of our diligence process. We brought a sizable team to Cape Town and spent time with our counterparts on the GetSmarter side.

We realised that our missions are really well aligned because we’re both focused on providing access to top quality higher education to students, no matter where they are. We both believe passionately in focusing on the learner outcomes, and their success in completing their programmes.

The 88% completion rate that GetSmarter has across their short courses is really striking and really speaks to their approach to people mediated education. We are very impressed by the way they deliver this result through the help of tutors and coaching support for the students.

At 2U, we are now in our 10th year. That means that we and GetSmarter have been around for similar periods of time, and we started in different parts of the market. 2U started focusing on full-blown online graduate degree programmes in the US. We certainly saw short courses as an opportunity for expansion, it’s something that our university partners have had a high degree of interest in.

There is a certain thoughtfulness in GetSmarter’s approach to all aspects of their business: from their strategic planning to their internal communications to their pedagogical approach in the education product itself. There were just a lot of pieces that said, “We very much feel like our business is going great, their business is going great, but we could be better together.”